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This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Let's fuck retail stocks because they certainly got a boost today as the latest read on US retail sales, excluding the impact of that cyber attack on auto dealerships that we talk so much about, rose in June by the most in three months. Carol assigned consumers regain their footing at the end of Q two.
Yeah, and just a little bit more detail. Of the thirteen categories that are tracked by the Commerce Commerce Department, only three registered declines. Those included sales of gasoline reflecting lower prices in the month. Sales at sporting goods stores also edging lower. So a little bit of context there what you need to know. We want to get to that now that we've had a few hours to digest that retail sales report, Washington DC Bureau, that's where we
go and to Bloomberg News. US Treasury and Economic Policy reporter Chris Condon. Hey Chris, good to be checking in with you. What do we need to take note of from this morning's retail sales report other than it was a surprise to the upside.
Hi there, Caroly.
Yeah.
The first thing in which you've already noted is to throw out the headline number. It was distorted by the auto issue that affected auto dealers. The underlying numbers were really good X autos up zero point four percent and going further, autos and gasoline. Gasoline fell mostly because of a fallen prices, not less demand. Take those out. There's your number zero point eight that's quite strong, much better than expected, and it finishes off the quarter on pretty
sound note. Now, more broadly, I would hesitate to make any big conclusion about a full recovery of the consumer. The broader trend is for cooling consumption, cooling demand. Obviously, the consumer and businesses are under pressure from high interest rates. We're seeing that across the labor markets, so that's going to further a road purchasing power. We're seeing more consumers in some level of debt distress. In a way, I would say the FED is getting exactly what they want,
an incremental gradual slowing of demand. It's helping to reduce inflation, but not so much that we're hitting some kind of dramatic tipping point. In the June strong retail numbers kind of reinforced that idea that we're not tipping over into a more dangerous period quite yet.
So if your fed Shair J. Powell, we've heard from him yesterday at the Economic Club of Washington. Chris, you talk about repeatedly every day, how data dependent you are. How do you take this bit of data?
Well, rule of number one is it's just one piece of data. They're going to incorporate it into a bigger sphere of numbers that they're looking at. And even within consumption, the retail sales is largely focused on goods. It's not really a comprehensive take on demand from consumers. So he'll they'll take that on board, but I don't think it's likely to deter them from that feeling that they are getting closer to a raid cut. Now, it doesn't sound like they're on the cusp of say a July raid cut.
There's no real firm signal of that. It does sound increasingly like a September cut is likely today's number is you know, gonna reinforce the idea that certainly July is not yet appropriate. But the overall trend, as I said, is moving them closer and closer to a September cut.
You know, it's an interesting, uh environment, no doubt about it. You know, we're gonna talk to him and I a little bit later on Claire Valentine Bloomberg News has a story about carve repossession surging twenty three percent, so rocketing higher in the first half of the year, and it's just another sign of consumer distress as we've seen, you know, either higher interest rates making payments more difficult, so you would say glass more half empty when it comes to consumers at this point.
Yeah, as you say, that's another sign of distress. We're seeing credit card balances ramp up. But you know, again I would come back to the point, Carol, that these are the things that you do expect when the FED has a restrictive policy in place, and it's not so bad that we're seeing a spike in unemployment or any creating in overall demand that would indicate a policy mistake has already been committed and that the FED is going to really have to start cutting dramatically. No, they are
closing in. They're not quite there yet, but they are closing in on that soft land. There will be pain along the way on the margins increasingly, but so far, so good, I think from the Fed, and pretty soon I think some consumers are going to start to see some relief not only in lower inflation but lower interest rates. How long that takes to feed its way through the lower credit card rates is another question, but some relief perhaps on the way.
Chris.
Inflation is still not at the levels the FED wants to see that elusive two percent at this point. What economic metrics, though, are seeing a normalization? You know, take into account like pre COVID levels. Where are we seeing things normalize and where are things not normalizing?
Well, you know, if I'm thinking of the bigger picture here, it's very difficult even to draw some conclusions yet. From the Fed's perspective, they're going to be wondering where to long run rates normalize, and that is still very much on unanswered question, a question they're going to have to
confront in the coming once. You know, they're starting a new what they call a framework review, and they're going to have to very publicly confront this question, and so far it does seem like long run neutral interest rates are much higher than they were before the pandemic. Will they return still? Like I said, an unanswered question that economists are grappling with, well.
And it's certainly something to those who invest in the banking sector are grappling with. Which is where we want to go right now. Chris, thank you so much, Always appreciate it. Chris Condon, his US Treasury and Economic policy reporter at Bloomberg News there in our DC bureau. So let's talk about the continuation of big bank earnings that came out earlier today. Morgan Stanley and Make of America reporting quarterly results this morning. Both stocks did rally for
much of the day. Morgan, though losing most of its earlier gains, still up just shy of one percent. BAA still up tim about five percent today's session.
And again, we're going to be hearing from Brian moynihan over at BIA just few minutes before we get there, though, let's check in on what these stocks did and what these banks reported. Morgan Stanley, like its rival Goldman Sachs and JP, Morgan beat expectations. It solidified the market's business as a hotspot across the industry. Investment banking fees Carol also increased. They sored fifty one percent from a year earlier, and then Bava.
We saw their stock hitting I think it was a two year high during the day after it reported trading and investment banking results at top. Analyst Estimates also gave a forecast for net interest income, very key and BAA's biggest source of revenue that also exceeded expectations. So let's get to it. Anton Schwitz is back with US, president and chief investment Officer at Menden Capital Advisors. He joins
US from Florida. His R and B mend and Financial Services Fund, by the way, up nearly sixteen percent in the past month, putting it in the ninetieth percentile among its peers. According to Bloomberg Data. The fund up twenty six percent in the past one year, putting it in the thirty six percentile in this category again according to our data. Ant, I'm good to have you back with us. How are you.
Well. It's been busy, crazy, always a crazy time, and then we've added craziness.
Yeah, it's crazy on top of crazy on top of crazy. But let's talk bank earnings, if we may, Morgan Stanley, b of A, let's start there. Investors seem to, for the most part, like what they heard, especially from b of A. Are these results investable? Should investors be acting on these results? In your view?
Well, I mean, I think people have been negative on b of A for quite some time. It's got a very large bond portfolio. It kept talking about the bottom and that interest margin, and here we are, we're at the bottom of the interest margin. They're actually guiding higher.
And obviously, as the bond portfolio you know, starts getting longer in the tooth, you know, the losses on it, you know, get smaller, interest rates drop, which people are thinking about again, the losses could you know, get smaller, may potentially even turn into gains over some period of time. So I think, you know, people may have been short Bank of America and clearly at this point there's a
lot more comfort in the banks general. And then you know, also since the debate, the financials have had a very strong performance because the Trump administration is seen as friendly er towards banks.
Are you buying that trade?
Well?
Uh, you know, I would you suggest.
Others by that trade. I guess I.
Know, well, I guess I guess I've said for some period of time to people are willing to listen to me, which you know, again, when you're out of favor, people aren't willing to listen. But I've said that, you know, buying my fund is like buying a call option really, you know, without a cost to it at the time, because evaluations were so cheap on if Trump wins. And it's just just going back to November sixteen, that that
month banks were up sixteen percent. Now, there was a tax cut in the offing, but from a regulatory perspective, I think, you know, deals getting approved again. You know, people expect that that administration be friendlier towards M and A, and clearly m and A has been way down in the space.
Anton. You know, I love asking about the consumer. Carol knows that I sound like a broken record, But one of the reasons I love hearing from Bank of America is because they have such a good eye on what the consumer's doing, how the consumer is feeling. We just talked retail sales. We're going to talk a little later about auto defaults. What what idea or what picture of the consumer. Did we get from Bank of America earnings today.
Well, I mean we got we got a pretty good picture. I think they're not going down the food chain into the subprime space because I think that consumer particular is hurting a great deal. I think the stimulus money's gone. I think the employment picture is getting tougher for them. Inflation is biting hard. So I'm negative on the subprime consumer. And I think if you look at the you know,
sort of the middle income part of the population. I mean you can see it in restaurant statistics that you sort of the full service restaurants are sort of struggling to you know, gain that consumer. You've seen even some of the lower end stuff like red Lobster, you know, get in a lot of trouble.
Yeah, exactly, all right, So you know, b of a with Morgan Stanley today, but wrap it up for us Goldman Sachs yesterday. And I know you do focus on kind of the smaller MidCap names Anton, but I do appreciate your insight when it comes to some of the big cap names, you know, JP Morgan of course, last week,
City Group and Wells Fargo. Are there any trends takeaways in terms of the overall banking sector, what we're seeing in lending, some of the commentary, what it kind of says about this environment right now.
All right, I'll take up the rest of the show.
Now, all yours?
Yeah, really, I mean, first of all, the one thing we didn't see was credit problems. You know, and everybody keeps harping, boy, we're gonna have all this trouble in the banking system from real estate and you know, they've reserved a lot and you know we're not. You know, we're seeing losses. Banking America actually said commercial real estate losses will be lower in the second half of the year. Fascinating, right. You know. Secondly, long growth is slow. All right, we
got slowing economy. We just talked about an economist on economy slowing. In fact, I think the FED is behind I wish they would get started, but you know, September appears to be in the cards, but they need to get go. Economy is slow and there's no loan growth. So what do banks have if there's no loan growth? Earnings are fine, capital grows, They buy backstock, maybe they start buying each other. That's what happens when you don't have any loan growth and credit quality is fine. I mean,
they've done a nice job. They've been very conservative really since COVID, And this is not two thousand and seven or eight. Keep saying that, but it's not. It's not showing up.
Well, why do you think the Fed is behind?
Because there's such a lag to them moving rates right, when they raise rates, it takes a long time for a take effect. When they lower rates the same thing. It's not like twenty five basis points is going to change anybody's economic behavior or viability. So you know, my guess is they tiptoe and give us twenty fives for a while. But that's pushing on a string early on. So it takes time for all those effects to take hold, for financing to become more attract different people, for people
to be able to refinance or invest in new projects. So, yeah, they've got it. They've got to get going. If the economy is slowing.
When does it start to concern you that they haven't gotten going yet.
Well, I mean I'm already I'm already concerned. I think they're already. They're already late. You know, if you think about unemployment, I mean where do we bottom three point four? You know word four to one. And if you look at different statistics, things like the household survey, the numbers are not as rosy on the employment side. So I think they've got work to do.
I do wonder too, Anon, when you look at the space, you know, what is your favorite first of all, big bank? What's your favorite other bank? If you will in the space and why? Yeah?
All right, Well, you know I've always loved geography, so again I'm going to talk about the southeastern Tennessee. So first Arizon. It's a pretty good size bank, right, just under one hundred billion in size. You know, they had agreed to sell the TV years ago. The deal got scuttle TD got in some trouble. I think that company is doing well fundamentally. I think they're in great markets and potentially someone else could go. You know what, I'd
love to be in those markets as well. So I think operationally they're great, and I think fundamentally and you know, they're attractive, so you know, if you go down the food chain. And I think I may have talked about it before, but First Bank in Mississippi. They're in Georgia and Mississippi and Florida, So you know two states that are really growing well. In Mississippi, by the way, is a lower unemployment rate.
In Texas, first Rising, by the way, is one of the top holdings. It's number nine in your fund. It's about four percent of your fund. Anton, what about banks that you want to stay away from? You said, well, correct me if I'm wrong, But I believe you said that we might still see some shake up in some of the regional banks when it comes to real estate. So sure, yeah, So which ones I want to avoid as a result of that?
Yeah, I'm not seeing a lot of failure. So first of all, let me not say that you should go out and short a bunch of banks that have a lot of real estate exposure. But you know there will be some losses. Things like life sciences, right That's that was a hot area to lend into. It's not a good area right now. So people have exposure to things
like that, you know, ar at risk. If you saw some downgrades on things like Bank of the Ozarks a month ago, that's an interesting, interesting a race to look at. I really respect the CEO, but he's got a lot of real exposure to things like that.
You know, I do wonder too, you know, in terms of what the FED does or doesn't do. Do you think you know, we've been talking a lot about politics, and are you concerned that the FED gets caught up in some of the political environment and maybe doesn't do as you said? I think you that they're already behind the curve. Are you concerned that they get caught up in that and maybe you know, don't move as fast as they I mean, they're already behind the curve according
to you. So do you think they kind of get caught up in that?
Well, I think they had gotten caught up. I mean, I think they acted a little late in racing rates. You know, I think Sherman Powell was waiting to get reappointed. So that transitory thing on inflation was was was bad. You know, President Biden has promised a rate cut, you know some months ago that the FED is going to cut rates. Well, there's a little bit of pressure. We haven't said anything lately, but yeah, you know, at this
point he's behind in the polls. A lot of the people at the FED have been appointed by him, so we can say that that's not a political organization, but you know, certainly people are going to have some loyalty to him, and he's behind in the polls, so I suspect there will be pressure on the FED to cut rates by the administration if we get any more bad economic statistics.
Anton one last question we're getting ready to hear from the CEO Bank of America or David Western sitting down with him in just a moment, what would be your top question to him? What's top of mind for you?
Well, you know, look, I'm a big fan of Brian Mooynhand, so I mean it was just amazing watching him take the rain after the financial crisis. So you know, the big question is what's next? Right, he can't he can't grow the company anymore from a depository perspective. One of the line of lines of business would he liked to be in, you know, is you want to continue to build out you know, the wealth management product? Does he want to continue to build out you know, other lines
of business? And by the way, how is he using technology? Because technology is going to be the biggest driver efficiency ratios in this industry. AI is enormous for anybody that has all those back office jobs like the big banks do.
All right, got to leave it on that note around the world of banking, we went as we always do. Anton, thank you so much, Be well, have a good summer. Anton Schutz, his president and chief investment officer at Mendon Capital Advisors.
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All right, let's talk a little bit more about politics, certainly fronton center. Donald Trump, of course, as you know, made his first public appearance since an assassination attempt. That was last night, white bandage covering his right ear as Republicans gathered to nominate him as their presidential candidate for a third time.
We didn't hear from the former president, but the through line of his populist doctrine was evident from tapping. Ohio Senator jd. Vance is his running mate to the spate of speakers, which range from business executives to the head of the influential Teamsters union. We've been heard from David Sachs, the venture capitalist who we were talking about a little earlier.
A broad spectrum of speakers, so what will the race and run up to the November elections mean for investors short and longer term? To tackle that with us as Karen Murphy, she's chief investment officer at the registered investment advisor Kestra Investment Management, joining us right here in our studio, Kara, Welcome, Thank you, Nice to have you here. Nothing going on, very quiet, it's very quiet.
Hey.
Remind us we often, you know, we'll talk about this some of our Bloomberg market write up stories or write ups on the markets. We'll talk, you know, remind everybody about kind of historically what happens in a presidential year. Remind us a little bit about that.
Well, Number one, there's always a lot of fretting, a lot of hand ringing, a lot of worrying. But what's interesting is that when we actually look at market performance in years when there's a presidential election, the annual turn is remarkably similar to non election years, but the way that we get there is a little bit different. And typically what we see as a kickup in volatility late in the summer prior to the election and then markets
sort of take off before the election actually happens. So we've been counseling people to be aware of this. It can still be a really good market environment, but it can be a bumpy road along the way.
It hasn't been that bumpy over the last year rect eighteen months.
And so this is where it's all. We also have to be caution because this year is so different in so many different ways. And I think part of the reason why marcuts have been able to rally in the first half of the year is because I know it doesn't feel this way, but there's actually much less uncertainty going into this election than what we normally have, especially specifically, yeah, and especially after our weekend like we just had. That sounds weird, but we have two former presidents who are
running against each other. We've never had that before. So the two presumptive candidates, we know what they do in office, we know who they surround them with, we know that what policies they favor. We actually never had that level of policy certainty going into an election. So from a market's perspective, that's actually a good thing.
Do you believe though, as you know someone who has to advise investors, that a second Donald Trump term would be just like his first term, So.
That's always a big question. And again, just because he served four years doesn't mean the next four years are going to be exactly do you want to say?
And this isn't being political, but he's not your standard political candidates.
He's also a lot of the people who were in his universe in his first term are, no question, out of his universe forever.
Right what people have been calling kind of the guardrails in that first administration.
But we also see, I mean even in a Biden administration or other administrations, you tend to see every couple of years a big turnover in terms of the personalities around a president. We also have this wonderful thing in the United States called political institutions, which themselves prove our guard rails and limit the amount.
That any one executive can you But you have a potential president meaning Donald Trump, who says he wants to undo those institutions and take away kind of the structure that has been entrenched and in many ways the checks and balances throughout the government. So how do you kind of think about.
And I think that is a very real challenge. But as we've looked through we're still relying on Congress to make policy We're still relying on courts to make judgments. So we might disagree with what those are, but we're still working through that system, and so I'm not calling the end of the American institutions just yet.
What do you see as potentially inflationary about another Trump administration? We've talked a lot about this, the idea that he is interested in raising tariffs. There are some questions about other policies that would actually be inflationary. How are you thinking about that?
Well, I think when we look at both potential administrations, both have potentially inflationary policies, and so for Trump it's more along the lines of tax cuts and tariffs, which you know, in some ways the market likes, right, The market likes when companies pay fewer taxes but actually be inflationary. So I think those are components to a broader picture. But there are certainly broader economic forces that'll play into inflation than just policy.
So what do you tell investors when someone comes and says, Cara, Okay, I want to put some money to work. Do I play it safe, keep it in cash right now, and wait to see what happens? What do you say?
I think if investors play it too safe, they risk missing a really good market environment. So what we would say is diversification is still your best friend.
Right.
You don't have to own just a handful of companies. You can diversify, whether it's smaller cap names outside the US bonds. So there are a lot of different ways that you can still be invested, enjoy a good market environment, but without being so behold into just a few names.
Would you play the Trump trade right now, which is everybody was kind of jumping on, and I think Tim and I talked a lot about this of being like a little careful one day. We still have a few months to go before the November election. But whether it was what prisons, gunstocks.
Crypto, those were all higher, we had oil stocks, we actually had clean energy stocks, and green stocks move lower yesterday, So it's like the classic Trump trade.
So I think often when we look at policy baskets in previous presidential elections, they haven't been very easy to trade. You'll have these like little blips where those types of companies outperformed, but then they kind of come back down to earth. So I'm actually not a big fan of playing individual stocks because as you pointed out, there's also a lot of policy uncertainty, even with two men who have already served as president.
Well, a lot of the policy uncertainty comes from what happens in the House and Senate, because you know, we talked to you about the idea of gridlock, and if there is a mixed Congress, or if the president is one party but Congress is another party, then you could see gridlock. How do you think about that?
Market usually likes gridlock. They usually like Washington not being able to get a lot of things done. So that's not a bad scenario.
But what's the scenario that you're playing out right now?
So we're looking beyond the election. We're looking at where we think the US economy is going. And we think the US economy is slowing, but in a good way. Inflation is coming down. You have the boost of the Fed rate cuts, and I think that actually is a much more important driver of the market than you know, who's going to be in the White.
House in January?
Cara, what's your okay? So it sounds like you look through who is ultimately going to be in the White House?
We do.
What's the risk though in looking through and missing something that could be dramatically different.
Well, there are a lot of risks, right, so as an investor who're always waking up at night thinking about different potential risks. But I think the biggest risk that we face is something that's more intrinsic to the US economy. Right, So maybe the FED doesn't cut enough and rates stay too high for longer and we start to see, let's say,
a crisis in commercial real estate. So I think those are much easier to kind of identify and then also hedge against, rather than some huge policy mistake that ends up coming out of the White House.
You mentioned commercial real estate. What else do investors have to have on their radar that could be on this bumpy road that you alluded to.
So the other thing that you know, we focus on a lot is the mag seven, Right, That's all anybody's been able to talk about for the last year and a half. And what we have found is that portfolio has become increasingly concentrated in just a handful of names, and then you end up being very overlevered to things like megacap and growth. So a lot of people who think they're very core actually aren't necessarily very core.
So does that make it a prime time. I mean, we talked a little bit about geographic diversification, but the US has outperformed global stocks for years at this point. Yeah, when is there going to be opportunity outside of.
The US the golden question?
I mean, if there's so much concentration risk here in the US, then sounds like you're saying, now.
Well, we think it's always important to have non US stocks in your portfolio, but it becomes harder every year that the SMP outperforms. But we think it's even more imperative today than it was, say, five years ago, for all the same reasons. Because you get diversification, you have different growth pictures, you have lower valuations, and they act differently. And then if you're worried about political risk, then all the more reason to make sure that you have exposure outside of the US.
But you are sounding like we can kind of look through the political risk of the election.
Yes, I believe we can, And I say that as something who's studied politics for a really long time.
Yeah, that it's not different this time around or anything.
Right, And again, I worry about everything, but I think the right thing to do is for investors to look through it.
All, Right, I think we're gonna leave it, Yeah, I guess.
I Mean my question though, is what's There's a lot of hay being made about. And Carol mentioned this about the fragility of institutions in the US and with a Supreme Court that some would argue gave up the president much more power in a recent ruling, why doesn't it concern you?
So it does concern me. I don't think it's necessarily something that we should be investing on our portfolios with. And when I ask people like do you feel like political polarization has grown in the US, everyone nods their head yes. But then I show stats showing that this has been growing trend for over forty years, and it's happening not just in the US, but outside the US as well. So this is a global phenomenon and it makes governing very very tricky. So it makes governan government
harder to actually implement. But it's not necessarily going to start a crisis, right, And that's what you're going to worry about from a portfolio perspective.
So even another like contested election outcome, you're saying, no, it's not good.
Yeah, I don't think it's going to change the trajectory of the SMP over the next couple of years.
All right, and that's the key, all right, Gonna leave it there.
I know nothing can stop the stocks, Carol, that's.
The mess, all right. Good to know. Thank you so much. That was good. Like we just kind of went round and round with it, and it was fun to do that. Karen Murphy, So, chief investment officer at the registered investment advisor Kester Investment Management, joining us right here in our studio.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Easter on Apple car Play and Android Auto with the Bloomberg Business ad You can also listen live on Amazon Alexa from our flagship New York station, just Say Alexa, playing Bloomberg eleven thirty.
We have leaned on our next guest many times throughout the global pandemic and the days following the murder of George Floyd, throughout the twists and turns of the twenty twenty presidential race, and so much more. He is someone who's worked in leadership roles in both the private and public sectors, including a nearly thirty year career on Wall Street, which is why we love talking about him about so
much of what is the Bloomberg world. His former Undersecretary of Commerce for International Trade and the US Department of Commerce that was during the Obama administration headed up the International Trade Administration. I could go on, but then we would be done. Let's get to it. Stefan Seelig is back with us, managing partner and founder of Bridge Park Advisors, the financing advisory firm here in our Bloomberg Interactive Brokers studio.
So nice to have you here with us. I do always like to lean on you to kind of connect the dots for us this environment. I'm not quite sure where to start, but it does feel like politics is the right place to start in terms of what might happen in November. Does it matter who ultimately is in the White House come November?
I Carol, how are you? I'm well? Thank you too, hot like everybody else, but at least cool in your studio.
You know.
Look, I think it depends on what the issue is, right and so some of the things we've talked about in the past, like China. You know, this is one topic where maybe the only topic where Democrats and Republicans seem you know, quite aligned, which is getting tougher on China. I'm not sure policies will be radically different between a Trump and a potentially a Biden administration. I think the deficit ain't gone down with either president. I think defense
spending is going up with either president. I think as a result of that, from an economic perspective, I'm not sure there's going to be a ton of difference. I think from a political perspective, clearly President Trump is going to be much more isolationist. He is going to have much stricter immigration policies, and he is going to spend
a lot of money. And so I think what all that does, which is why you're seeing the steepening of the yield curve, the so called Trump trade that you've talked about in the strengthening of the dollar, is you know, those are all going to be quite inflationary, especially if he adopts some of these more aggressive tarror proposals that he's talked about both with China and in imports, which could be Trumpian hyperbole, but if it does happen, that inflation is going to go up dramatically.
And can you play that out for us? Because I don't think. I think there's times in terms of I think of voters who are just trying to pay their bills at this point. But how would that potentially play out and impact the US economy and US citizens.
Well, tariffs are nothing else other than you know, taxes, right, They're taxes on goods, and unfortunately they're quite regressive because the people that are impacted most are you know, the folks that are paying their bills every month with groceries and car payments and everything else, and so prices will go up. There was not a very significant impact in the Trump original set of tariffs because they were not that significant, and President Biden obviously kept them largely in place.
So the real question is he going to be much more aggressive in the next term and if that is going to happen, you know, some economists are talking about one hundred basis point two hundred basis point increases and inflation, let alone about the impact and the slowing of the economy overall.
We have seen the narrative shift in the last seventy two hours following the assassination attempt on the former president. Gone are the conversations dominated by who's going to replace Biden? On the ticket if anyone. And now the focus has been, especially with the RNC happening right now, on the strength of Trump's position, at least in the polls, in sort of a renewed sense of energy around him. You talk to CEOs all the time in your position at Bridge Park Advisors. What are they telling you?
Well, look, I think you're quite right, Tim that the narrative has changed on the one hand, But just to go back before we talk about the CEO perspective in a moment, I almost have a counterintuitive point of view, which is the strengthening of Trump from this horrific assassination attempt could in fact have an opposite of the Trump trade, which is this could be maybe an accelerant to having
a change Democratic ticket. Really and if that were to be the case, just based on the poll numbers, you'd actually argue for taking the opposite side of that trade, because now Biden looks so much weaker than even he did after the debate that that may force Democratic leadership and the president himself to really re evaluate whether or
not he wants to stay. And I have no perspective on whether that is going to be the case or not, but it is interesting that the strengthening of Trump could have that potential outcome.
Do you realistically see a scenario in the next few weeks where there is a change at the top of the ticket. I mean, the President did reiterate to Lester Holt last night that he's there to he's in it to win it.
Yeah, we've all heard the same thing on the one hand. On the other hand, despite what you may think about the President some of his policies, I believe he is a true patriot and he wants to do the right thing for the country. And if he becomes convinced that he is not going to be able to beat Donald Trump, change his mind, because at the end of the day,
this is not just a narcissistic decision. It is a decision that many people believe is going to fundamentally affect and I'm sure he does the direction of this country. Going back to your question about CEOs, what I would say is, you know, first of all, most Fortune five hundred CEOs are Republicans. So I don't know polls have been taking seventy five percent are Republicans. You're starting with a base that most CEOs of big companies would vote
for Trump. Kind of along party lines on the one hand. On the other hand, for this particular candidate, in the conversations I've had, I don't see much enthusiasm for one, I don't think they appreciate his style. Two is, some of these policies. CEOs are not isolationists, they are not xenophobic,
they are not protectionists. They don't like tariffs, and so they don't like all of the social policies that are being talked about, for example LGBTQ rights, and so while I think on the one hand, you know, many of them are seeing the writing on the wall and as a result not standing up and lining behind President Biden, on the other hand, I don't think there's a lot of enthusiasm for this particular president as much as there
is enthusiasm for traditionally central centrist Republican policies as a way to drive corporate profits in corporate prosperity.
You know, one of the things that we've been talking a lot about is kind of the establishment folks in Silicon Valley are really in kind of the venture startup world, and they're backing of Donald Trump and JD. Vance. It seems like at this point, why do you think that they appeal to them. Is it tax like, what is it?
Well, part of it is jd Vance, you know, had a job in Silicon Valley for a while, and so I think there is a little bit of a connection that he has personally with some of those folks.
But Peter TiAl and Eli we're backing Trump for a long time.
Yeah, And I would say, frankly, Carrol, those are not really representative of the Fortune five hundred establishment traditionally. Now it may be it may be the New World Order, but it certainly wasn't the world order of the last you know generation.
Well, is it important to make that distinction because it's interesting they're in the headlines a lot.
Sure, but they're in the headlines a lot because of you know, the huge you know, wealth and success of Elon Musk and a number of other folks that like to, you know, comment on this. But traditionally, corporate CEOs are going to be much more reticent for making public political, you know, statements, because it's kind of not their lane
and not their job. So as a result of that, you kind of have the squeaky real sort of phenomenon where you have folks like Bill Ackman that like to comment on these things, and Elon Musk because of X and other things, that likes to comment on these things. Where traditional corporate executives, I think, because they're you know, their customers and their clients are both Republicans and Democrats, are quite chary about being as vocal.
Remember the Whole Foods founder who we spoke I was just thinking about that.
Yeah.
We spoke to John Mackie a few weeks ago. He's got a new book out and in the book he writes about the time that he weighed in on Obamacare and how it was such a disaster and he said the board told him never again, ever, ever, don't touch anything.
The cutest toy story tim that I've heard about that was a comment that Michael Jordan made. Yeah, and he said, you know, guess what, both Democrats and Republicans by sneakers.
Yeah. Hey, Well, speaking of that, we did just speak to Kara Murphy over at Kestra Investment Management, and she encouraged our listeners and our viewers to look beyond the election and argued that who's in the White House really
doesn't matter when it comes to financial markets. That said, we spoke to read Hoffman, the Lincoln founder and billionaire, about six weeks ago over at our San Francisco conference, and he said it absolutely does matter because he's concerned about a lack of stability as a result of a Trump presidency. What side are you on? Does it matter who's in the White House?
You know, I think, of course it matters. But you also have to have to ask that question in conjunction with what happens to the Congress and is it going to be a divided government or not a divided government because that is a natural check and balance that I think will cause some of them more extreme outcomes from taking place. But what I would say is, you know, the United States position in the world will clearly be
different between these two governments. And you know President ex president former President Trump and President Biden have a different worldview in terms of cooperation internationalism versus isolationism, and that is going to impact not only the citizenry, but impact businesses in many respects, and so I don't think it
can be ignored. I am not quite as alarmist as some folks in terms of the end of democracy and civil war and some of the other things that you know, some people are talking about On the one hand, I do think, you know, this is an important election and we need to be rightly talking about the issues.
Someone, do you feel like you worked within the government the Obama administration? Do we still have checks and balances? Will we still depending on who's in the White House come November.
You know, obviously our system hasn't changed. What has changed, Carol, is we used to govern from the middle, and now we're governing from the extremes in both parties, and that is what creates a lot of I think, these tensions and a lot of our ineffectiveness in terms of our ability to implement any policies. And I think, frankly, and this is my personal point of view, until we get back to the middle, we're going to have a lot of We're going to have some real issues because that's
what creates the animosity and the ability to collaborate. And you know, when when President Biden was in the Senate, he was you know, notoriously well known and rightly so for actually being a being able to collaborate across the aisle. And you don't see that from either party at the moment, and I don't see that changing with this election. In either direction.
You did say until we get back to the middle, which strikes me as really optimistic. Do you see within I mean, it's not an.
I think he said he was an optimistic within our lifetime.
Do you get back to the middle?
You know, you know, I don't know, Tim, You may as well be hopeful because it's better than the other choice.
Yeah, that's fair.
Your clients, what do they ask you most about and what are they up to?
Well, you know, I think at the moment, as you as you rightly said, there was a whole conversation around what was going to happen on the top of the Democratic ticket.
Uh.
Then the implications of the assassination attempt, Uh, clearly. But I think there's still a lot of uncertainty in the economy. And you know, you guys spend a lot of time, understandably talking about the markets, but the markets in the real economy are divergent. And the fact is is that despite being at all time highs in the equity markets, you know, consumer sentiment is not high. Savings are being depleted from the pandemic relief costs, inflation is going up.
Costs to consumers are going up. Car payments, mortgage payments are higher because of interest rates, and that's creating a real sense of a you know, lack of prosperity with most American households. And households Carol, you know this, households don't own a lot of stock, right, So all of that, all of that good stuff that we talk about in the equity markets really doesn't impact households traditionally, and even that high equity market. You guys talk about this all
the time. It's really technology. And it's not just technology. It's a handful of companies in the technology sector.
If you could change one policy, they would help more Americans. You're right, the market is not main street.
What would it be though, Oh, I probably it would be a political thing, and I probably have term limits to have us govern more effectively. Yeah, so I guess that would be the answer.
We just talked about car repossessions rocketing higher in the first half of the year. Carol asked you about one policy you would change though, in the last thirty seconds that we have. Why do you think that so much America is struggling at a time when the economy is so good for so many people.
Well, I don't know, Tim is it's so good for so many people if there's a real wealth gap, and it's good for a lot of I think your listeners who occupy a certain economic position in this country, and I'm not so sure it's so good for so many people. A lot of people are struggling, and that is why this populism that President Trump and jd. Vance espouse has
become so popular. And I think, you know, we can't ignore that, and you know, we can all have style to concerns and concerns about some of their policies, but the people, the Americans that they are talking to, you know, really feel what they are they are trying to address.
Yeah, I think it explains very much the political environment that we are, not just in the United States, but really globally right in terms of people not feeling that they're doing better.
For sure, and you know, Brexit, the elections in France, et cetera, et cetera. I mean this is a global phenomenon.
Thank you as always, Stepan See like his magic partner Bridge Park Advisors.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple car Play and and brout Auto with a Bloomberg Business app, or watch.
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You might remember on Friday, Carol and I were talking quite a bit how we plan to move to the French Riviera.
To broadcast show this story.
Okay, before we were even done talking about it, we got a message from management that said, no, don't even think about it. The reason we were talking about, though, is because the French Riviera is so hot right now. Prices of homes valued above sixteen million along France's southeastern coast rose between fifteen percent and twenty percent in the five years through twenty twenty three, out performing the thirteen
percent gains in London in the same period. That's data from broker Boushampas State Show review of the luxury real estate market closer to home and around the world too. We welcome back Daniel de la Vega, president of one Southeby's International Realty. Daniel joining us from Colorado. Daniel, how are you?
I'm great, Thank you for having me back. Excited to be back on the show.
Well.
Southeby's International Realty just out with its Meteor Luxury real Estate Report, and it shows that luxury properties are performing better than non luxury properties. Is this all just because of rates and the folks that you're selling to don't care about mortgages?
You know, the folks that we sell to do care about mortgages, right, their businesses are affected by mortgages. But our luxury market in South Florida is performing better than I mean, the French is definitely performing better than the French riviera. I heard you guys just talking a little
bit about that. Our single family home market, the ten million dollar plus market for sale, product is up thirty percent, sold is up thirty five percent, pendings are up thirty percent, and the average price per square foot is up eleven percent to twenty four hundred dollars a square foot. Those are unheard of for our market. And then on the
condo side, it's even higher. Right for the ten million dollar plus market for sales up thirty seven percent, solds up twenty percent, pendings are flat, but the price per square foot is up to thirty four fifty one per square foot. And that's inventory that's on the market. Those are numbers from the local MLS. Is that doesn't account for new developments, which trade for traditionally twenty to thirty percent above what's on market, so you know, interest rates
aren't really affecting us. I think that everybody's kind of bullish that interest rates are going to go down, and like they say, interest rates are temporary, all right.
Interesting. I do wonder though, if rates go down and people kind of like it doesn't pay as much to leave my money in cash. Although we're not, you know, down to zero or anything like that. Hey, having said that, Daniel's always important. I feel like when we have a conversation with you, this is a very kind of narrow part of the real estate market. Although obviously a lux one and a high end one and a pricey one. How does it compare to pre pandemic levels what we're seeing today?
Oh, you have markets that are up three hundred percent in some instances. I mean it is a completely different market, especially in Florida. All the job creations.
So stronger, hotter than it was pre pandemic.
Way stronger, way hotter.
Yeah.
I mean those numbers that I just gave you were for were year to date numbers. So we've had an incredible, incredible first half of the year here in Florida and most of the college my colleagues that I speak to across the US. I mean, I'm sitting here in Aspen, Colorado. The market's performing incredibly well, and it's look, it's a lack of inventory. People don't have homes to sell. You know, people don't want to sell their homes. They have locked
in low mortgage rates. And you know, while mortgage rates are coming down, we're very bullished that they are going to come down. We saw the CPI numbers close to three percent, we saw unemployment up to four point one percent. We're bullish that they're going to come down. Canada is about to lower for the second time, and inflation hasn't come down after the first. So very very positive outload from that standpoint. But it's an inventory crunch. There's still
not a lot of inventory on the market. Most markets are averaging still below a six month supply, which is what we look at as our baseline average.
Daniel, is the idea of climate change, rising sea levels, increasing volatility of storms. Is that on the rate the radar at all of your clients in South Florida.
You know, it has its moments. You know, you have sometimes articles published about sea level rise and things like that, and we're trying to be as resilient as we can in Florida. It definitely has infected insurances, insurance prices. Insurance prices have double, sometimes tripled, especially waterfront properties, properties that need win mitigation. So, you know, it's something that's it's on a case by case basis, but it's not something
that's happening at a more macro level. You're seeing people talk about it as they price their insurances say, WHOA, this is a lot more than I expected. But you know, the same thing goes for taxes in Florida, right, I mean, taxes in Florida are high compared to other states. We average one point eight seventy five percent as property tax. States like Colorado they have very low property tax but we still continue to have people want to purchase, want
to live, want to build their careers in Florida. So you know, it's something that I think is going to be temporary. It's going to have to be it's going to have to be fixed at a federal level, and I'm bullish that our government will fix it.
Do you think what you think insurance has to be fixed at a federal level.
I do, especially in Florida. Yeah, it's going to have to be a federal issue.
That's interesting because Texas and California are also running into some serious insurance issues. Here in New York too. I think a lot of homeowners would say that their insurance rates have gone up, just tech one of them. Yeah, yeah, I mean, I just want to play that out a little bit for us about how that would work nationally, because that's a that's an interesting solution that I haven't heard about.
You know, look, I don't know how it would play out. I'm just hoping that the Fed does get involved at some level, creates some subsidies for us so that we can make insurances, you know, across the country affordable. Because while it's up three times in Florida, to your point, it is, I mean it is up. It's not two percent of property value, but it's still up in Colorado, it's up in Texas. So you know, I think there'll have to be some sort of subsidies created at the federal level.
What might surprise some one who is listening right now the Bloomberg audience about your world.
You know, what would I was looking at at some you know, the election is a big, big topic, and I think what people fail to realize is that property values have gone up in nine out of the last eleven elections, and eight out of the last eleven elections, mortgage rates have gone down. So I'm I'm very bullish that with interest rates coming down, statistically speaking, there there they go down, and then the pent up demand after the election, and again statistically speaking, there's there's a lot
of pent up demand. And you know, you have nine out of the last eleven elections and increase in property values. I think we're I think we're in line for a really really good, strong Q one. We might see a little bit of a slowdown, you know, pre election interest rates are obviously going to help with that, but still, I think the first quarter of next year is going to be really really strong. H And we're very bullish on what's to come.
What's the outside of the South Florida market, what's another market that needs to be on the radar of our audience.
You know, I keep reading that New York's a buyer's market. I'm still very bullish on New York. I love Manhattan. I think the arts in the cultural scene are out of this world. The restaurants are still great, the people are still great. They have some of the best colleges in the world. So if it's a buyer's market, like everybody's saying, I would double down on Manhattan.
Interesting, Okay, it's some optimism about Manhattan.
Yeah, exactly, exactly, really interesting.
You know, I just have a long term view on things in general when it comes to real estate.
Right, Hey, one last question. Who are mostly your buyers at this point? What's the demographics of it? Is it folks in the United States? Is it global buyers? What is the age? What can you tell us?
Yeah, we're still seeing a lot of Northeast buyers. We're seeing a lot of millennial buyers. Actually, I think this sixteen trillion dollar the generational shift of wealth, I think is a really big deal from the baby boomers to the millennials. We're seeing a lot of properties being bought in trusts. We're seeing a lot of that in our new the new development space. We represent a lot of
new developments along the east coast of Florida. And then you know, Canada is still the number one Byron Florida, although they buy at a lower price point. We're seeing Texas, We're seeing a lot of California and Mexico. Mexico is a huge, huge market for US, and then Latin America's always been a big market for US, and it kind of depends on what's happening happening at a at a local level the countries in Latin America.
All Right, we're going to leave it on that note. By the way, Elon Musk might be looking for a house in Texas because that's where he's moving his uh SpaceX headquarters from California. I know he's been out at it. I mean, did he sell all his homes?
Also, he's been out exactly, I know, but I do think this is more symbolic than it is. I mean, Tesla has already moved production there. Just yeah, sorry, I don't mean to.
Break That's all right, It's kind of that kind of a day. Daniel be Well, Daniel de la Vega, he's president of one Southeby's International Reality joining us from Colorado.
Marco Journal.
Now about you let me drive?
Oh no, no, no, no, all right, please I'll travel.
Excuse I want to drive.
It's a question.
This is the drive to the clothes well shod on Bloomberg Radio.
All right, TikTok to everybody coming up on eighteen minutes left in the trading session, getting ready on just a bit, we're gonna head over to our TV colleagues catching under the closing bell on uh this Tuesday. In the meantime, we're gonna talk a little bit more about this trade.
Yeah, we got Christia Coolian with us, head of I Shares Investment Strategy over at black Rock. Christy, good to have you with us. I Shared just out with its media. Everyone's out with their media report.
I know what is that.
It's because it's the media, That's what it is. Yeah, you and the team right the report report card? Oh yeah, Medior, Yah, say you better get on top of that. You don't know we have that?
Do you have that?
Christy? I do want to talk about the I Shares media report because you and the team right that since our last outlook in March, a broad sampling of data reflects a US economy with substantial growth momentum. How much momentum does the economy have?
Yeah, and thanks for having me. It's so great to be here today.
Yeah.
So, I mean, I think that one of the biggest differences from what we were talking about earlier this year. It's certainly coming into this year is really just that the economy has remained a lot stronger than expected. So we've really taken out a lot of that left tail in terms of the recession risk. And so we've seen the economy, you know, it's stayed a lot stronger than expected, and I think that it's in a really benign deceleration
mode right now. So we do expect growth to slow, but we don't expect it to slow so much that we're going to get that bumpy or that hard landing that maybe investors thought we were going to get in December.
No recession at all, you.
Know, right now, it certainly doesn't look like it right now. It does paint more of a soft landing picture. And I think that that's part of what encourages us in this mid year out look, is you reference to lean into risk. But you know, I think that there's a difference between leaning into risk and then just indiscriminately reaching for risky assets, and that's certainly not what we're talking about. A lot of the themes that we're talking about there
are quality. So something like qu a L as a ticker that we have had top of mind and top of investor minds as well too, as we think about staying invested and leaning in a little bit, but doing so in kind of a sensible way that screens for higher quality.
Christy, what was the moment where or the piece of data or what happened when you said, you know, we're going for soft landing. Well we're full on soft landing here. What was that moment that you decided that this was the narrative we're going to adopt.
You know, I don't know if.
It was one specific moment so much as a collection of moments and data that we've gotten over the course of the year. So maybe kind of an unsatisfying answer.
You know, I think GDP growth came in a lot stronger than we expected, and a Q four a little bit softer than expected in Q three, but still twice as strong as investors expected coming into the year, So you know, I think, I mean that headline number matters, but yeah, I think it really is just the broad sampling of data that makes us more feel more comfortable. But it's not just that one single data point.
You know.
It's interesting. I'm looking at the it shares quality as you said, qual as the ticker and you know, if I look at some of the holdings, they're well known names and some of the big megacap tech names that have really pushed the overall market higher. So it's Nvidia, it's Apple, it's Microsoft. To be fair, there's also Visa. Meta is also in there, Costco, Johnson and Johnson. And I'm looking at a performance over the past year that's up about twenty nine percent here, five year up about
fifteen percent on average annually. You know, it's kind of interesting. Does it still make sense to be somewhat passive and just buy them a market at this point?
You know, it's a great question, and I think it really depends upon investor preference here. I think there's a lot of investors that we speak to who do prefer an index exposure, and for that we like quality for investors who maybe are comfortable taking a more active approach.
You know.
You know, we've got some great offerings there. The one that we've been talking about a ton and really, you know, I think has made for these times is DYNF. So that is our Dynamic Factor Rotation Fund. It still looks a lot like quality right now, but because of that active management tilt and the strategy that it follows, it can change a lot more quickly than an index fund can.
And so what we're seeing is that as we're approaching this period where is the FED going to start to cut, is inflation going to start to fall, we're seeing these inflection points kind of form in the market and on the horizon, and I think that investors who want to be able to take advantage of that are leaning more into active strategies and we've seen that in the flow.
Help me out, though, because I look at the top holdings in this one and it's a lot like the last one we just talked about, qual and Video, Microsoft, Apple, Visa, Meta, So help me understand. You know, constantly, it's really some of these large megacap names that really provide the momentum for even though you call them different things, it's really the same names that are really moving the needle.
It's a lot of the same names, it's at slightly different weights, and I think the importance is the rebalance frequency as well. So, yes, the active fund looks very similar to the quality index fund right now because it chooses to be in higher quality names. What can change pretty rapidly though, is it's actually started to dial back a little bit of its quality preference, and it started to tilt up a little bit of its value preference.
So that faster rebalancing schedule just means that it can move more quickly with the markets, even though you know, all of these funds are going to in broad strokes still sort of represent a market cap weighted index as a starting point, and then they're going to make adjustments from there.
How are you thinking about themes that you don't have ETFs for right now? What's what's when you go into the the room at Blackrock? Can you talk about, you know, themes that you want to sort of adopt moving forward? What's interesting to you?
Yeah, So there's there's a lot of growth in alternatives, right I mean, I think that that is a big part of the focus right now. I think we're talking more about some of the liquid alternative strategies, so things that can still be you know, invested in via a mutual fund wrapper for example, and that can still offer
sort of daily liquidity and whatnot. But I think that as you know, as as the market matures and as you know, the ETF industry expands, and also other fund wrappers you know, we're looking at things like private markets as being opportunities and where and how those can fit into different investor portfolios. So I think a lot of the excitement and sort of the new frontiers, if you will,
are sort of in that alternative space. But you know, even even now, if you just look at some of the launches, if the proof is in the putting, if you will, a much larger share of ETF launches don't look like ETFs in the past. So about forty one percent of all launches that we've seen so far this year have been active and not just lets them do different things lay in different markets. Then maybe people thought
about ETFs traditionally. So even within the ETF rapper, the investment profile is changing, and outside of it, I think it's looking and pushing that frontier in terms of alternatives, liquid alternatives, private markets, things like that.
We what do like when you guys talk to institutional clients just got about twenty five seconds left here, you know, or investors in general, what other kind of devices or ETFs are they looking for to play around within this market? Just real quickly.
Yeah, again, I think a big part of it is active strategies. Okay, but outcome strategies, so things that are using derivatives to either enhance income or define more specific outcomes. I think that's a really quickly growing category for a lot of investors and institutional in particular too. And a breaking news for you here is just just today I Shares reached four trillion dollars globally.
And that's under management.
So that's a new stat.
All right, well we'll take it. Hey, listen, Thank you so much. Christy Akulian. She's head of our shares investment strategy over at Blackrock, joining us from San Francisco.
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